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Chancellor Jeremy Hunt gave a statement this morning in which he outlined plans to scrap 'almost all' the tax measures announced by his predecessor, Kwasi Kwarteng just four weeks ago. In one of the largest U-turns in history, the markets have become the most important force in British politics.James Forsyth, Katy Balls, Kate Andrews and Fraser Nelson discuss what may happen over the next few weeks.Produced by Max Jeffery and Natasha Feroze.
Liz Truss needs an exit strategy. Unless she can eke past Canning’s 119 days, the Prime Minister will go down in history as Britain’s shortest-serving premier. That ignominy will only be compounded by the absence of a legacy. Nothing is going to overshadow a fleeting and calamitous spell in No. 10, but there are scraps she can throw future historians searching for something, anything consequential to say about her tenure other than its brevity. Trexit will be hugely embarrassing but it need not be an unmitigated humiliation. Time is not on her side, so whatever she does must be readily achievable while reflecting her political instincts and worldview. The most immediate way to go about this is by using the despatch box.
In a few hours’ time, Liz Truss will have to sit next to Jeremy Hunt as he announces the reversal of all but a handful of measures announced in Kwasi Kwarteng’s mini-Budget. It is the biggest and most rapid U-turn in recent British political history. The Prime Minister will sit there as her agenda – and the platform on which she ran for the leadership – is dispatched by the Chancellor, who is now her gaoler; just imagine the market reaction if he ever resigned. It is a remarkable development and one that leaves Truss holding the seal of office, but not much more. Her intellectual and political project is over.
What is the point of Liz Truss's government? Expect more MPs to ask that question today after Jeremy Hunt's statement tearing up the not-so-mini Budget. The new chancellor has just announced in an address that he will be scrapping every tax cut in Truss and her then-chancellor Kwasi Kwarteng's fiscal event bar the reversal of the national insurance hike and the cut to stamp duty. Both would have been particularly tricky to row back from given stamp duty has already happened and the NI hike has already been legislated for – with MPs voting last week. The energy support package has also been watered down.
When Jeremy Hunt took the role of chancellor last week, he was thought to have done it under instructions from Liz Truss that he was not to roll back any more of the mini-Budget. That instruction hasn’t stuck. Today’s update on the ‘medium-term fiscal statement’ was not so much a detailed plan to balance the books (that’s still to come on 31 October), but rather a reversal of almost all of the mini-Budget rolled out by Liz Truss and former chancellor Kwasi Kwarteng last month. The plan to bring forward a 1p cut to the basic rate of income tax has been scrapped completely. It was thought that Hunt would return to the timeline Boris Johnson’s government had originally laid out, to come in from 2024.
The government’s position has become so precarious – and its credibility with the markets so low – that even waiting another two weeks to announce the ‘medium term fiscal statement’ became too big a gamble. By moving the announcement forward to today, Jeremy Hunt is removing the uncertainty of creating a two-week gap between the end of the Bank of England’s intervention in the gilt market and the government’s announcements. And markets are tentatively responding well. Ten-year gilt yields started dropping considerably when the market opened at 8 a.m., from 4.3 per cent down to just under 4.1 per cent. You can follow along with hourly updates via The Spectator’s data tracker here.
As Iranian munitions have hurtled through the air at the front line in the Donbas, and as Iranian suicide drones have smashed into Ukrainian cities, Tehran has denied everything – unconvincingly. The most recent was Iran’s foreign minister, Hossein Amirabdollahian, who said on Saturday: ‘The Islamic Republic of Iran has not and will not provide any weapon to be used in the war in Ukraine’. With the piety beloved of hypocrites everywhere, he went on: ‘We believe that the arming of each side of the crisis will prolong the war’. This is part of a pattern.
Trussonomics is dead, long live Treasury orthodoxy. New Chancellor Jeremy Hunt unpicked the bulk of his next-door neighbour's policy agenda on TV this morning, telling the nation that nearly all of the tax measures that have not started legislation would now be reversed. Income tax will now remain at 20 per cent 'indefinitely', the free on alcohol rates has been scrapped with only the National Insurance and Stamp Duty breaks surviving. Hunt also confirmed that he will go ahead with Rishi Sunak's planned corporation tax increase next April from 19 per cent to 25 per cent. It's a dramatic break with Liz Truss's promise in, er, August at the Tory husting that there would be 'no new taxes.
The chip war between China and America is heating up, with an increasingly assertive Joe Biden battling with Xi Jinping as he enters his third term as Chinese leader. The US last week further restricted China’s access to advanced American know-how, in what were some of the most stringent export controls for decades. Xi didn’t mention semiconductors in a speech on Sunday marking the opening of the Communist party’s twice-a-decade congress in Beijing, but he did pledge that China would ‘resolutely win the battle in key core technologies’. To compete with the US, China will need better tech. These new export controls will make Xi’s vision much harder to achieve.
Just two weeks ago, Liz Truss told the Tory conference that her priority was ‘growth, growth and growth’. But how much of that can she expect now that her new Chancellor plans to jack up corporation tax from 19 per cent to 25 per cent as the economic headwinds strengthen? As she never tired of telling us during the leadership campaign, it’s an unusual thing to do at a time of threatened recession: no other G7 country plans to put up taxes in this way. Now that she has agreed to go along with the Sunak plan in the name of assuaging the markets, City forecasters are doing a double-take. Instead of that ‘growth, growth and growth’ we are set for recession – and one that they say will be deepened by the U-turns.
As the Labour party’s lead reaches 27 per cent or more, it would be easy to place the entirety of the blame on Liz Truss. That doesn’t mean it would be fair; the effort to alienate all but the most hardline tribal Conservative supporters has been a joint effort across 12 years and multiple prime ministers. Markets hated the mini-Budget; cutting taxes while making massive spending pledges to subsidise energy demand during a critical shortage was not a winning formula. Apparently, blackouts are not looked on kindly; who could have guessed? Voters, meanwhile, hated it because it offered more to those who are better off.
It is not easy to feel sorry for Liz Truss. She has a deeply unattractive streak of vanity – when in the Foreign Office, she seemed more interested in posing for the official photographers who trailed her round than she did in building relationships with the places she visited. She campaigned hard and sometimes dirty to obtain a job for which she was manifestly out of her depth. Once in that job, she exercised power with peremptory arrogance. She rewarded people who had sucked up to her, cast out anyone who had spoken up for her rival, and allowed experienced civil servants to be hoofed ruthlessly out of their jobs.
In a sign of how nervous the government still is about the state of the gilts market, the Treasury has just made a pre-market announcement that Jeremy Hunt will bring forward further measures from the ‘Medium Term Fiscal Plan’ today – in other words, more measures from the mini-Budget will be abandoned. The Treasury says Hunt has briefed Andrew Bailey, the Governor of the Bank of England, and the Debt Management Office on these plans. We will get details on these measures when Hunt makes a statement to the Commons later today. Presumably this is what Hunt and Liz Truss agreed at Chequers when they met on Sunday. The fact that Hunt is making this statement is another illustration of the power he now holds in government, he is Truss’s gaoler.
How much trouble is Liz Truss in? Just six weeks into her premiership, the Prime Minister's economic plans are in tatters after she axed her chancellor Kwasi Kwarteng, reversed on her campaign pledge to scrap the scheduled corporation tax hike and brought in Jeremy Hunt as his successor. Now Hunt is calling the shots on the economy and he plans to reverse much of what the Truss government have announced so far, with tax rises and public spending cuts to come. Truss's own supporters are privately asking what the point of her government is now. Unsurprisingly, this has all led to talk among Tory MPs that the end is nigh. One Tory MP, Crispin Blunt, has come out publicly to call for Truss to go.
Liz Truss is now prime minister in name only: Jeremy Hunt, her chancellor of the exchequer, now holds power. He has repudiated her tax-cutting mini-Budget in a round of media appearances – his performances being far more convincing than Truss’s graceless eight-minute press conference on Friday. His admission that spending cuts will be needed and that ‘some taxes are going to go up’ to balance the books has injected a much-needed dose of realism. The question on everyone’s lips is: what will Hunt do now? Is he a stalking horse for a new PM (Rishi Sunak being the obvious candidate) or is the former head boy at Charterhouse himself a prime minister-in-waiting? Let’s look at the options.
In office, Liz Truss promised to be the 'disruptor in chief'. Unfortunately, most of that disruption has proved to be in the markets and the polls as her short-lived revolution tanked the standing of both her currency and her party. With Labour and mortgage rates on the rise, Truss's authority has disappeared within days. She's been forced to ditch her ideological soulmate Kwasi Kwarteng for Jeremy Hunt, the embodiment of Tory orthodoxy, and is now very much a prisoner of her party as they try to find someone – anyone – who can dig them out of their self-inflicted mess. Most of these discussions are happening behind closed doors as MPs weigh up their various options: a coronation or a contest? Ben or Boris? A fresh face or old?
Jeremy Hunt – ‘The Prime Minister is in charge’ To say things do not look rosy for Liz Truss would be quite the understatement. With the government now on its second Chancellor in as many months, and its once flagship policies being hastily swept under the carpet, the Conservative party appears to be in damage limitation mode. Laura Kuenssberg spoke to the new Chancellor this morning, in a pre-recorded interview, asking him if Truss was now such a damaged figure that he was the one really calling the shots: https://twitter.com/BBCPolitics/status/1581565785247465472?
Liz Truss’s gaoler has just done another BBC interview. Jeremy Hunt continued to try and give himself maximum room for manoeuvre, saying ‘I’m not taking anything off the table’. He repeated his message: We are going to have to take some very difficult decisions both on spending and on tax. Spending is not going to increase by as much as people hoped, and indeed we're going to have to ask all government departments to find more efficiencies than they'd planned. And taxes are not going to go down as quickly as people thought, and some taxes are going to go up. It will be fascinating to see if Truss is as direct on this when she is asked the question at PMQs next week.
Joe Biden, ice cream in hand as so often, yesterday pronounced on Liz Truss’s tax reform disaster. ‘I wasn’t the only one that thought it was a mistake,’ said Joe Biden, sounding every bit the wise old man of global politics. ‘I think that the idea of cutting taxes on the super-wealthy at a time when… I disagree with the policy, but that’s up to Great Britain.’ That concession at the end is the President realising he’s just breached the normal rules of diplomacy – by giving his opinion on an ally’s domestic difficulties. But he just can’t help himself.
Jeremy Hunt has no mandate to lead Britain. He couldn’t muster sufficient Tory MPs behind him to properly enter the last leadership contest. He was beaten overwhelmingly in the one before that. He was a key part of the failed Theresa May administration that lost a parliamentary majority at a general election. He played no role in the Boris Johnson administration that won it back with plenty to spare (a victory from which the Conservative mandate to govern still flows). Yet in a round of interviews this weekend, the new Chancellor of the Exchequer simply ripped up the economic agenda of Liz Truss. He mocked and then buried the PM’s vision of dynamic unfunded tax cuts. He pulled the rug from under her Commons pledge that the Government will not cut public expenditure.